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    Estee Lauder Companies Inc (EL)

    Q4 2024 Earnings Summary

    Reported on Jan 6, 2025 (Before Market Open)
    Pre-Earnings Price$95.10Open (Aug 19, 2024)
    Post-Earnings Price$95.10Open (Aug 19, 2024)
    Price Change
    $0.00(0.00%)

    What went well

    • Retail growth in North America has accelerated, with brands like Clinique showing exciting progress following the implementation of new strategies.
    • The company expects to leverage strong market fundamentals globally, anticipating the prestige beauty market to return to mid-single-digit growth as China and travel retail stabilize.
    • Estée Lauder's strategy reset and Profit Recovery and Growth Plan position it to grow at least 1 point ahead of the market in the long term.

    What went wrong

    • Increased competition in North America is creating a strong competitive environment, leading to market share challenges for the company.
    • Moderation in the U.S. prestige market growth, with expectations of further slowing, could negatively impact future sales.
    • The planned retirement of CEO Fabrizio Freda may result in leadership uncertainty during a critical transformation period for the company.

    Q&A Summary

    1. CEO Succession Planning
      Q: What are the plans for your successor as CEO?
      A: Fabrizio Freda stated he will be heavily involved with the Board in selecting his successor, emphasizing that the Board has been working on this for some time and is well advanced in the process. He highlighted that the successor should be a great leader who understands the key elements of the company, including brand building, driving global growth, and reshaping the cost structure.

    2. China Slowdown Impact on Earnings
      Q: How has China's slowdown affected fiscal '25 earnings?
      A: Tracey Travis explained that the slowdown in China and travel retail, which are high-margin areas, puts significant pressure on earnings and EPS. Mainland China is expected to be flat to down high single digits, and travel retail Asia is expected to be down double digits. Despite this, EPS is projected to increase due to contributions from the Profit and Recovery Growth Plan (PRGP).

    3. Long-Term Growth in China and Travel Retail
      Q: What's the outlook for long-term growth in China and travel retail?
      A: Fabrizio Freda indicated that while the luxury prestige beauty market historically grows at mid-single digits, current forecasts are at 2–3% due to declines in China and travel retail Asia. He expects the market to return to normal growth rates once these areas stabilize, highlighting that demographic fundamentals remain intact globally. The company aims to grow at least one point ahead of the market in the long term.

    4. Investments vs. Earnings Focus
      Q: Are you cutting investments to boost earnings growth?
      A: Tracey Travis assured that they are funding consumer-facing investments through gross savings from the PRGP. They are protecting key investments even in a difficult year, funding growth areas from savings generated. Fabrizio Freda added that they aim to ensure sufficient investments in key business areas to leverage future growth momentum.

    5. Travel Retail Inventory Management
      Q: Can you update on travel retail inventory levels?
      A: Tracey Travis acknowledged that decelerating sales in China travel retail led to higher-than-desired inventory levels at year-end. The company is addressing this in the first quarter by managing inventory levels to align with customer demand amid volatility. Fabrizio Freda emphasized that normalizing stock in travel retail is a top priority and that they are improving management processes, including building a distribution center in Hainan to shorten delivery times.

    6. Channel Shifts and Margin Impact
      Q: How are channel shifts affecting margins?
      A: Tracey Travis noted that travel retail will comprise a lower percentage of sales in fiscal '25 due to expected declines. The company is pivoting to faster-growing channels like online platforms, which are allowing them to recruit new consumers and are margin accretive overall. Fabrizio Freda added that investing in high-growth channels improves the return on investment and offsets higher recruitment costs in declining channels.

    7. North America Market Outlook
      Q: What are you seeing in the North America market?
      A: Fabrizio Freda mentioned that despite a moderation in growth, the U.S. market is still growing at mid-single digits. The company is cautious but optimistic, having seen progress in the fourth quarter with retail growth and acceleration in July. Brands like Clinique are showing encouraging progress, and efforts are focused on stabilizing market share and aligning with market growth.

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